Lawrence Regional Technology Center

An example to follow: Proteon Therapeutics goes from good idea in '92 to invitation to premier VC event
Lola Butcher, Staff Writer

September 24, 2004

The Business Journal of Kansas City

From the September 24, 2004 print edition

Kansas City's Proteon Therapeutics LLC, a three-year-old biotech company, heads west in October to present its business plan at the National Conference on Biotechnology Ventures in San Francisco.

Now in its 17th year, the conference is an invitation-only event, and every significant biotech venture capital firm focusing on young companies will send at least one representative.

Darlings such as Human Genome Sciences Inc. (Nasdaq: HGSI), Millennium Pharmaceuticals Inc. (Nasdaq: MLNM) and Affymetrix Inc. (Nasdaq: AFFX) had their debuts at the conference, and most biotech startups with visions of venture capital sparkling in their eyes dream of going there.

But there is no application process.

"We try to invite the most interesting companies in the country," said conference organizer Doug Fambrough, principal of Oxford Bioscience Partners in Boston. "We sort of actively root around."

Proteon's invitation came at the suggestion of Mark Mendel, managing director of St. Louis-based RiverVest Venture Partners, which has been tracking Proteon's development.

"Historically, if you look at the companies that have succeeded, we have a pretty good track record of picking them when they were young," Fambrough said.

Dr. Nick Franano, Proteon's president and CEO, will make the 15-minute presentation.

"We got invited to the ball," he said. "And I hope we come home with a prince."

Proteon's story, still unfolding, demonstrates how Kansas City-based assets -- in this case, investment capital, research infrastructure, scientific expertise and a referral network -- can help a life sciences company get off the ground.

As the company matures, The Business Journal will track Proteon's development, including Kansas City's effect on the company and its impact on the local economy.

The possibilities

Proteon is developing a drug that shows evidence of dilating arteries and veins, keeping them open and reducing the formation of scar tissue that builds up in blood vessels through time better than currently available treatments.

The company's founders are developing the drug to prolong the use of blood vessels, which often close after surgical procedures such as hemodialysis access, angioplasty and bypass grafts.

The hemodialysis market that Proteon's technology would target is thought to be at least $400 million a year. Proteon's target market for angioplasty, which is the 20 percent of patients for whom stents are not appropriate, is more than $500 million.

The path so far

1992 -- Ottawa, Kan., native Nick Franano was finishing a medical degree at Washington University School of Medicine in St. Louis when Elias Zerhouni, an associate professor at Johns Hopkins University, recruited him to do an internship in Baltimore.

Franano, who had a master's degree in biomedical research, started investigating an enzyme that he thought had potential to help patients suffering from biliary strictures, or the closure of ducts that transport bile. He presented his research to Zerhouni, who liked the science but not the application. Not enough patients suffer from biliary disease to attract the attention of investors.

"That was the first time someone had ever pointed out to me that some good ideas don't go anywhere because of the way the market works," Franano said.

Based on that advice from Zerhouni, who now leads the National Institutes of Health, the world's largest provider of financing for medical research, Franano shifted his focus to applying the enzyme to problems in arteries and veins.

June 2001 -- Franano and his father-in-law, William Whitaker, incorporate Proteon Therapeutics to pursue development of the drug.

Franano's day job at the time was radiologist on the medical staff of Research Medical Center; he spread out his vacation time to allow one day a week on Proteon work. Whitaker was a corporate lawyer who had experience with two other biomedical startups.

They set out to prove Franano's idea, using their own money to finance studies at the University of Kansas Medical Center.

"We could not have done most of what we have done without KU," Franano said.

November 2001 -- Recognizing that he needed a collaborator, Franano sought out a Washington University vascular surgeon. That, in turn, prompted a referral back to the Kansas City area. Dr. Kirk Hance, assistant professor of vascular surgery at KUMC, signed on to serve as principal investigator for Proteon's technology.

2002 -- Franano presented his research to Bill Duncan, president of the Kansas City Area Life Sciences Institute Inc. He, in turn, referred Proteon to Regulatory Clinical Consultants Inc. (RxCCI), a Lee's Summit company that provides regulatory guidance for pharmaceutical companies.

"That helped us recognize how valuable this opportunity was in the marketplace," Franano said.

RxCCI mapped out the regulatory process for developing the drug and estimated how much each phase would cost, key information for the business plan on which Whitaker and Franano were working.

Spring 2003 -- Based on its application, Proteon was invited to Invest Midwest, a venture capital conference in St. Louis. It won attention from RiverVest Venture Partners, a venture capital firm that has coached Franano and Whitaker on how to advance their plans.

"One of the keys to successful entrepreneurs is recognizing you can't do it alone," RiverVest Managing Partner Mark Mendel said. "I've spent a lot of time with (Franano) ... and he acts on the ideas that are actionable."

Whitaker and Franano started raising money from local investors, mostly Whitaker's business associates. The minmum investment was $50,000.

Most important, new research data from their studies bolstered their confidence that the drug would be a significant improvement over currently available therapies.

Franano moved to Heartland Health in St. Joseph, where he now practices as a radiologist every other week.

December 2003 -- Franano received the Excellence in Life Science Award from the Missouri Biotechnology Association.

Early 2004 -- Proteon was one of three Kansas City-area companies invited to go to the Best of the Midwest Bio Mid-America Venture Forum.

"Proteon really does have a leg up (on other biotech startups), and the evidence of that is the attention they are getting from high-quality venture capital companies," said Charles Romano, a consultant who is working with Proteon on grant applications and other matters.

Proteon hired Kimberly Bland, a KU graduate who has a doctorate in molecular and cell biology from the University of California-Berkeley, as senior scientist.

Franano said the senior staff covers the bases needed for an early-stage company. He is a medical doctor with research training; Whitaker is a corporate lawyer with finance experience; and Bland is a research scientist with experience with early-stage companies.

"Nick, as a practicing clinician, has a very firm grasp on his market, which is vascular surgeons," Romano said. "To me, that is a huge differentiator between this company and a lot of other companies."

Additional private-placement financing comes from local physicians and Kansas Technology Enterprise Corp.

June 2004 -- Proteon won a grant from the National Institute of Diabetes and Digestive and Kidney Diseases, a unit of the National Institutes of Health.

The money is nice, but the validation that comes from NIH financing is what's important, Franano said.

Proteon moved its research labs into the Kansas City Biotechnology Development Center, a wet-lab incubator owned and operated by the University of Kansas Medical Center.

The first tenant after a significant renovation of the incubator, Proteon is just the kind of company that the medical center wants to be associated with, said Thomas Noffsinger, vice chancellor for research administration at the KU School of Medicine.

September 2004 -- Franano said his most recent studies suggest that the drug may significantly reduce the long-term build-up of scar tissue in arteries after a surgical procedure.

"That really increases our value proposition," Franano said.

Whitaker and Franano are working on their fourth round of private financing.

To date, they have raised $910,000 from individual investors, mostly in the Kansas City area.

They expect to receive their first round of venture capital financing in the fourth quarter of this year.